ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr. Justice Cooke
2011 Folio 1519
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MOORE-BICK
LADY JUSTICE HALLETT
| SULAMÉRICA CIA NACIONAL DE SEGUROS S.A.
|- and -
|ENESA ENGENHARIA S.A.
Mr. Michael Crane Q.C., Mr. Stephen Houseman and Mr. Damien Walker (instructed by Clyde & Co. LLP) for the respondents
Hearing date : 20th March 2012
Crown Copyright ©
Lord Justice Moore-Bick :
"2. . . . The insurance was, however, reinsurance-led, in the sense that the insureds, through brokers JLT, sought to arrange the terms of the reinsurance cover before local insurers were put in place to "front" the covers. The reinsurances are led by Swiss Re, Allianz and Zurich Re. The programme was tailor-made for the Jirau project and was the subject of lengthy and detailed negotiation between the insureds, who are substantial enterprises, and the reinsurers. The reinsurances are expressed in the English language and the policy, although in the Portuguese language, contained essentially the same terms as the reinsurances, translated from the English. In determining the issues which arise, both parties proceeded on the basis of the policy, translated into English, as reflecting the reinsurance terms and conditions."
"7. Law and Jurisdiction
It is agreed that this Policy will be governed exclusively by the laws of Brazil.
Any disputes arising under, out of or in connection with this Policy shall be subject to the exclusive jurisdiction of the courts of Brazil.
If any dispute or difference of whatsoever nature arises out of or in connection with this Policy including any question regarding its existence, validity or termination, hereafter termed as Dispute, the parties undertake that, prior to a reference to arbitration, they will seek to have the Dispute resolved amicably by mediation.
All rights of the parties in respect of the Dispute are and shall remain fully reserved and the entire mediation including all documents produced or to which reference is made, discussion and oral presentation shall be strictly confidential to the parties and shall be conducted on the same basis as without prejudice negotiations, privileged, inadmissible, not subject to disclosure in any other proceedings whatsoever and shall not constitute any waiver of privilege whether between the parties or between either of them and a third party.
The mediation may be terminated should any party so wish by written notice to the appointed mediator and to the other party to that effect. Notice to terminate may be served at any time after the first meeting or discussion has taken place in mediation.
If the Dispute has not been resolved to the satisfaction of either party within 90 days of service of the notice initiating mediation, or if either party fails or refuses to participate in the mediation, of if either party serves written notice terminating the mediation under this clause, then either party may refer to the Dispute to arbitration.
Unless the parties otherwise agree, the fees and expenses of the mediator and all other costs of the mediation shall be borne equally by the parties and each party shall bear their own respective costs incurred in the mediation regardless of the outcome of the mediation.
In case the Insured and the Insurer(s) shall fail to agree as to the amount to be paid under this Policy through mediation as above, such dispute shall then be referred to arbitration under ARIAS Arbitration Rules. The Arbitration Tribunal shall consist of three arbitrators, one to be appointed by the Insured, one to be appointed by the Insurer(s) and the third to be appointed by the two appointed arbitrators. The Tribunal shall be constituted upon the appointment of the third arbitrator.
The arbitrators shall be persons (including those who have retired) with not less than ten years' experience of insurance or reinsurance within the industry or as lawyers or other professional advisers serving the industry.
Where a party fails to appoint an arbitrator within 14 days of being called upon to do so where the two party-appointed arbitrators fail to appoint a third within 28 days of their appointment, then upon application ARIAS (UK) will appoint an arbitrator to fill the vacancy. At any time prior to the appointment by ARIAS (UK) the party or arbitrators in default may make such appointment.
The Tribunal may at its sole discretion make such orders and directions as it considers to be necessary for the final determination of the matters in dispute. The tribunal shall have the widest discretion permitted under the law governing the arbitral procedure when making such orders or directions.
The seat of the arbitration shall be London, England."
The proper law of the arbitration agreement
"It is by now firmly established that more than one national system of law may bear upon an international arbitration. Thus, there is the proper law which regulates the substantive rights and duties of the parties to the contract from which the dispute has arisen. Exceptionally, this may differ from the national law governing the interpretation of the agreement to submit the dispute to arbitration. Less exceptionally it may also differ from the national law which the parties have expressly or by implication selected to govern the relationship between themselves and the arbitrator in the conduct of the arbitration: the "curial law" of the arbitration, as it is often called." (Emphasis added.)
12. That is consistent with his observations in the earlier case of Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG  2 Lloyd's Rep. 446 when discussing the possibility that different systems of law may govern the substantive contract, the arbitration agreement, the individual reference and the arbitral proceedings. At page 455, col. 2 he said:
"Where the laws diverge at all, one will find in most instances that the law governing the continuous agreement [sc. the arbitration agreement] is the same as the substantive law of the contract in which it is embodied and that the law of the reference is the same as the lex fori." (page 455);
and at page 456, col. 1:
"In the ordinary way, this [sc. the proper law of the arbitration agreement] would be likely to follow the law of the substantive contract."
However, it should be noted that in that very case Mustill J. (as he then was) was inclined to treat the parties' choice of Zurich as the place of arbitration as indicating an intention that the law governing the arbitration agreement should be the law of Zurich.
"Where the substantive contract contains an express choice of law, but the agreement to arbitrate contains no separate express choice of law, the latter agreement will normally be governed by the body of law expressly chosen to govern the substantive contract."
"16-016 It is submitted that in most cases the correct solution will be found in the construction of the agreement as to the parties' choice of law. This respects the fact that what is in issue is a contractual question, on which the parties enjoy autonomy of choice of law, whether under the common law or under the Rome Convention. If no such choice, express or implied, can be discerned, then it will often be the case that the arbitration agreement will be found to be most closely connected with the law of the place where the arbitration has its seat, which is also the place where the award is to be treated as "made" for the purpose of the New York Convention.
16-017 The law chosen by the parties. If there is an express choice of law to govern the arbitration agreement, that choice will be effective, irrespective of the law applicable to the contract as a whole. If there is an express choice of law to govern the contract as a whole, the arbitration agreement will also normally be governed by that law: this is so whether or not the seat of the arbitration is stipulated, and irrespective of the place of the seat."
"The starting point is to determine the proper law of the contract in which the arbitration is embedded. As a general rule the arbitration agreement will be governed by the same law, since it is part of the substance of the underlying contract. But this is not an absolute rule, since other factors may point clearly to some other system of law. Thus if the arbitration is to be held in the territory of a state which is party to the New York Convention on the Recognition and Enforcement of Awards, section 5(2)(b) of the Arbitration Act 1975 [now section 103(2)(b) of the Arbitration Act 1996] appears to give rise to a rebuttable presumption that the law governing the validity of the arbitration agreement is the law where the award is to be made. The presumption would we submit readily be rebutted in favour of the proper law of the underlying contract."
"One is therefore just left with his dictum in the Black Clawson International case (with which I would respectfully agree) that it would be rare for the law of the (separable) arbitration agreement to be different from the law of the seat of the arbitration. The reason is that an agreement to arbitrate will normally have a closer and more real connection with the place where the parties have chosen to arbitrate than with the place of the law of the underlying contract in cases where the parties have deliberately chosen to arbitrate in one place disputes which have arisen under a contract governed by the law of another place."
" . . . it has, I believe, been generally accepted that in an arbitration case with a foreign element, three systems of law are potentially relevant. Namely: (i) The law governing the substantive contract. (ii) The law governing the agreement to arbitrate, and the performance of that agreement. (iii) The law of the place where the reference is conducted: the lex fori.
In the great majority of cases, these three laws will be the same. But this will not always be so. It is by no means uncommon for the proper law of the substantive contract to be different from the lex fori; and it does happen, although much more rarely, that the law governing the arbitration agreement is also different from the lex fori. See Miller v Whitworth Street Estates Ltd.,  1 Lloyd's Rep. 269;  A.C. 583."
Mediation as a condition precedent to arbitration
The scope of the arbitration agreement
"In case the Insured and the Insurer(s) shall fail to agree as to the amount to be paid under this Policy through mediation as above, such dispute shall then be referred to arbitration under ARIAS Arbitration Rules."
"As a matter of language, a failure to agree "as to the amount to be paid under this policy" includes a dispute about whether any sum is due under the policy at all, and thus includes matters of liability and coverage."
Reconciliation of condition 7 with conditions 11 and 12
"Whereas Condition 11 of the policy appears permissive in allowing a party to refer a dispute to arbitration in the circumstances referred to, Condition 12 provides that such disputes "shall" be referred to arbitration. Whilst the Insurers argued that the contract gives rise to a permissive right to refer to arbitration, and that the only mandatory element requires that, if that permissive right is exercised, the arbitration must take place under ARIAS rules, for the purposes of this argument, I treat the arbitration clause as being mandatory."
"49. In the present case, on the construction that I have held, all disputes or differences can be and must be referred to arbitration under the terms of Condition 12, but if that is so, what is left of the exclusive jurisdiction of the courts of Brazil under Condition 7? The answer is very little in practice - much the same as found by Christopher Clarke J in paragraph 82 of the ACE decision. It enables the parties to found jurisdiction in a court in Brazil to declare the arbitrable nature of the dispute, to compel arbitration, to declare the validity of the award, to enforce the award, or to confirm the jurisdiction of the Brazilian courts on the merits in the event that the parties agree to dispense with arbitration. It specifically operates to prevent the parties proceeding in another court on the merits. Use of the Condition 7 rights for these purposes does not detract from the arbitration clause but gives them meaning. Furthermore, enforcement in Brazil against Brazilian parties is self-evidently a realistic possibility."
Lady Justice Hallett:
The Master of the Rolls: